Patagonia will now be run by a nonprofit foundation. The shift generated a lot of headlines, but outside of the U.S. this form of ownership is not new. “Shareholder foundations” have quietly prospered for decades in continental Europe, particularly in Denmark where a quarter of the largest 100 firms are foundation-owned, including the three largest firms in the country: Carlsberg, Maersk, and Novo Nordisk. The authors’ analysis of these firms suggests they can succeed as businesses, and that the arrangement helps simplify some of the tradeoffs that for-profit companies typically face when considering social responsibility.
On September 14, Yvon Chouinard, the owner of Patagonia, publicly donated all his voting stock to the Patagonia Purpose Trust, and all his nonvoting stock to the Holdfast Collective, a nonprofit organization “dedicated to fighting the environmental crisis and defending nature.” The move was intended to shield the company from the “pressure to create short-term gain at the expense of long-term vitality and responsibility,” while simultaneously creating long-term funding for philanthropic causes around environmentalism. 
Patagonia’s move follows other American companies that have undergone a similar transformation in ownership structure. For instance, the family-owned, Pennsylvania-based construction firm High Industries, which had revenues of $570 million in 2021, announced earlier this year that their eponymous High Foundation would assume control and ownership. A few years ago, such arrangements would have been impossible; a 1969 tax-reform law limited foundation ownership in corporations to 20%. In 2018, however, new tax legislation passed allowing charitable organizations to hold 100% of voting rights in a corporation. Accordingly, we can expect to see more of these foundations emerge in the future.   
Outside of the U.S., this form of ownership is not new. “Shareholder foundations” have quietly prospered for decades in continental Europe, particularly in Denmark, where a quarter of the largest 100 firms are foundation-owned, including the three largest firms in the country: Carlsberg, Maersk, and Novo Nordisk. In many instances, the initiative comes from successful senior entrepreneurs like Chouinard, who decide to bequeath ownership of their company to a newly created foundation to ensure the long-term stability of both business and philanthropic activities. In some cases, a foundation controls both voting and equity shares. In others, like Patagonia, two entities are formed: a trust or holding retaining control through voting rights, and a foundation with the equity and philanthropic activities. 
In collaboration with the philanthropy consultancy firm Prophil, we have studied shareholder foundations in Denmark, Germany, Switzerland, and France and have developed important insights on how they operate.
Firstly, despite claims that firms will flounder without human owners and “market discipline,” foundation-owned firms have similar (and in some cases superior) financial performance compared with their investor-owned counterparts. Danish corporate governance researchers have demonstrated the benefits of this ownership structure: Foundation-owned firms have more stable growth, are less volatile during crises, invest more in R&D, and have a longer lifespan compared with conventionally owned firms.  
The second insight concerns philanthropy. For firms listed on the stock market, corporate philanthropy is “nice to have,” but is often secondary to profit maximization. Oftentimes, the two are in conflict: For instance, out of thousands of companies accorded B-Corp (Benefit Corporation) certification, only four have managed to go public in the U.S., one of which surrendered its status shortly after being listed in order to become more profit-oriented. The shareholder foundation model pragmatically overcomes this tradeoff: Because the shareholder is a philanthropic foundation, maximizing shareholder returns (via dividends) also maximizes potential donations. Given the size and revenues of many foundation-owned firms, the philanthropic budgets of shareholder foundations can be substantial. 
A third insight concerns legacy. For firm owners focused on maintaining their economic and philanthropic mission in the long term, there are few compelling options available to them. Selling or listing a company rarely leaves the founder’s vision intact, but family succession is no less problematic because subsequent generations might mismanage it. Beyond this, there is the risk in some countries that high succession taxes will dilute ownership over time. As a result, only 10% of family businesses survive as privately-owned entities by the third generation, as exemplified by the adage “shirtsleeves to shirtsleeves in three generations.” The foundation skirts this issue by creating an entity that will guard the values of the founder in perpetuity — even if that means their children relinquish much (if not all) their inheritance in the process. 
Nonetheless, our research has also revealed important governance considerations that Patagonia will face. The first is board composition: What balance must be struck in terms of corporate, philanthropic, and family representation, to ensure that no one party dominates decision-making in the long-term? Another involves decisions around profit allocation: Should profit be issued as a dividend to fund philanthropic activities or reinvested back in the firm? A third question involves whether to integrate philanthropy with corporate activities: As an example, the Novo Nordisk foundation funds basic science at Danish universities, and in doing so develops research (and researchers) that may benefit their pharmaceutical firms. If Patagonia followed a similar path, would it appear self-serving? 
These challenges should discourage neither Chouinard nor his family (who will be involved in the decision-making of both entities). Many foundation-owned companies that establish a successful balance go on to outperform their competition on multiple dimensions. Take the Robert Bosch Group, for instance, which is 94% owned by the Robert Bosch Foundation and 5% by the family, while their major competitor, the Siemens Group, is 65% owned by institutional investors like BlackRock, 23% by private investors, and 6% by the Siemens family. These are comparable companies: two leading German conglomerates, competitors in several markets, with similar economic performance (about 80 billion euros in sales and 5 billion euros in net income). However, as a shareholder, the Bosch Foundation spends roughly 100 million euros annually in philanthropic donations. That’s 10 times the amount distributed yearly by the Siemens Foundation, a traditional corporate foundation. The structure also provides an element of stability and resilience in turbulent times. In contrast to Siemens, Bosch avoided massive layoffs during the Great Recession while increasing sales and remaining profitable over the subsequent decade. 
As shareholder foundations become adopted by more American companies, they will undoubtedly be shaped by the legal, cultural and political environment in the U.S., which differs starkly from those in European economies. Nonetheless, such foundations have a track record of success, resilience and responsibility in many of the countries in which they are present. In uncertain times characterized by market volatility, rising inequality, and ecological crises, Chouinard will hopefully inspire more successful business owners to explore the possibilities of foundation ownership. 

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